Russia and the theatre of the absurd – trying the dead

According to the most recent reports, the posthumous trial of Sergei Magnitsky, who died while in police custody, has been delayed further to a request from the defence for more time. What defence you ask? Well obviously defence attorneys selected by the state, so you can be assured of their objectiveness….

It beggars belief that President Putin, Prime Minister Medvedev and other cronies would want to raise the spotlight on one of the most blatant instances of state corruption, when various state officials, including from the police, scammed tax payments to their benefit and then laid the blame with a foreign investor. Magnitsky had uncovered the crimes, only to be arrested on trumped-up charges and to die in mysterious circumstances in prison.

Medvedev, who was President at the time, promised to look into his death and to punish those responsible. Nothing has happened since. This led to sanctions on travel imposed by the USA against various Russian politicians

And now in response, the Russian authorities have decided to try a Russian citizen who died in police custody in Russia, an individual who had uncovered corruption, a well educated lawyer trying to make things better for everyone in Russia, representing a foreign investor (Hermitage Capital).

You would have thought that the Russian authorities, the Sechins of this world, would want to put this episode behind them. You would have thought that the powers that be in Russia would understand the adverse impact on Russia and the country’s investments.

You would have been wrong. This regime doesn’t care. The various clans in power have already stolen so much that they really don’t care what happens to Russia – they have already got their escape routes should they be required, buying property in Florida, the UK, France, Germany, Italy, Spain, Greece.

If they did care, they wouldn’t try a dead man who was killed by the regime.

Angstrem linking up with AF-Group

According to Kommersant (13 February 2013), leading manufacturer of prepackaged grain Angstrem and  agricultural holding AF-Group, which focuses on rice, have announced plans to merger their businesses in the new company AFG National, with the value of the merged assets estimated at over RUB 8 billion.

The partners may also acquire production facilities from Razgulyai and Mistral, with the goal of transforming AFG National into a major rice supplier, accounting for 25 per cent of the market.

According to analysts, it remains unclear how powerful the holding will be, in view of the reduction in rice import duties following Russia’s accessing to the WTO.

 

 

Ukrainian bank subsidiary turns to Russian state-owned parent for support

As reported in Kommersant on 13 February 2013, Ukraine’s Prominvestbank, one of the country’s oldest banks and regularly ranked in the top ten in terms of retail savings, has appealed to its parent, Russian state-owned corporation Vnesheconombank (official English name – Bank for Development and Foreign Economic Affairs), for almost USD 800 million in financial assistance, including USD 400 million in the first quarter of 2013, as it is undercapitalised based on the requirements stipulated by International Financial Reporting Standards [IFRS]. The bank needs to create 100 per cent provisions for bad debt, thereby adversely affecting its capital.

Vnesheconombank owns 98 per cent of the bank and will no doubt adhere to this request. This is the first time, however, that the Russian state, represented by Vnesheconombank, has had to provide assistance of this kind to a foreign subsidiary.

As Ukrainian banks have only just had to start making the transition to IFRS (effective from 1 January 2013), there has to be cause for concern for other institutions that don’t have such a wealthy patron, given the sorry state of Ukraine’s economy.

Of course, this might lead to some interesting M&A transactions/share swaps.

 

Contrasting issues

To date this blog has focused perhaps too much on the issues facing Russia, the widespread poverty, corruption and indifference of the powers-that-be.

However, things aren’t much better in Europe and the US, as a new hard-hitting documentary points out, covered in an excellent article in the Guardian http://www.guardian.co.uk/film/2013/feb/02/inequality-for-all-us-economy-robert-reich

Just like Russia, a small minority in the US and UK own the majority of assets. Unfortunately, this is rarely reported. As well as highlighting inequality and the squeeze on the middle class and poor, the documentary stresses the negative impact that such government policies have on the economy, with all hopes of growth destroyed by futile austerity.

Meanwhile, as indicated in another report recently, based on Sberbank data, almost 90 per cent of Russians own their properties – compared to a far lower figure in the US and Europe. This has historical roots (decree by Russia’s first President Boris Yeltsin to allow Russian citizens to privatise the state properties where they live). At the same time, to date Russians have to a large extent abhorred debt (I am not talking here about the dishonest oligarchs, but instead the general public), preferring either to pay cash for property or to repay loans/mortgages early.

And given the high budget deficit issues in the West, compared to Russia, it remains unclear how the situation will develop over time. A recent Economist report focused on the unsustainable nature of the welfare state in the UK and highlighted successes in Nordic countries.

Mostotrest General Director talks about Russian infrastructure risks

In an interview given to the Russian business daily Kommersant (13 November 2012), Mostotrest General Director Vladimir Vlasov discussed the issues that you face if you attempt to build infrastructure in Russia. He should know:  Mostotrest is a major diversified transport infrastructure construction company in the country, inter alia the largest bridge builder in the Russian Federation in terms of revenue.

He also disclosed that the company planned to buy from businessman Arkady Rotenberg for RUB 7.87 billion (approximately GBP 160 million)  the North-West Concession Company, which is the concessionaire of the high-profile construction project – the paid highway Moscow-Saint Petersburg, as part of plans to diversify the business.  At the same time, it is worth noting that Rotenberg is the main shareholder in Mostotrest.

Vlasov explains that, while there are no obstacles blocking the access of foreign companies on the Russian infrastructure construction market, there is one issue that may hold them back – the inability in Russian conditions to plan for all the potential risks that may arise and the fact that from the very outset in Russia sites are not ready for construction and necessitate a completely different approach: to build at extremely rapid tempos once the sites are ready to compensate for lost time.

Kerimov comes to rescue of SMP-Bank again

According to Russian business daily Kommersant (13 November 2012), billionaire oligarch and Dagestan Senator Suleiman Kerimov is once again providing funds for SMP-Bank, which is owned primarily by brothers Boris and Arkady Rotenberg (with interests of 37.27 per cent each), who allegedly have close ties with President Vladimir Putin.

As in August 2012, Kerimov is placing a USD 50 million subordinated deposit at the bank, which will subsequently be classified as capital further to a request filed with the Central Bank by SMP-Bank. This move will enable the bank to keep its capital adequacy ratio at above 10 per cent.

ChelPipe to dismiss 8 per cent of the personnel

According to the Russian business daily Kommersant (19 November 2012), welded and seamless steel tube and pipe manufacturer Chelyabinsk Pipe-Rolling Plant (ChelPipe) has submitted plans to the Ministry for Economic Development to dismiss 8 per cent of the personnel over 2012-2013 (1,400 production staff), attributing the move to the need to close down inefficient production facilities. It had already sacked 450 people by September.

According to analysts, the company had no choice due to its high debt burden, the debt restructuring assistance it received from the state and falling large pipe sales owing to the current economic slowdown.

 

 

Rosatom may acquire Czech interest in Slovak power plant project

According to Czech media (15 November 2012), Russian state nuclear power corporation Rosatom may acquire a 49 per cent interest in the JV Nuclear Energy Company of Slovakia from Czech energy company ČEZ. The other partner in the JV is Slovakia’s JAVYS.

The JV is building a new power unit of the Bohunice Nuclear Power Plant project located in Slovakia.  The construction contract is worth an estimated GBP 2.4 billion. Rosatom also supplies reactors for two units being built at Slovakia’s Mochovce Nuclear Power Plant.

Albert Kahn investing in rail car production plant, potentially with Sistema

According to Russian business daily Kommersant (16 November 2012), US architecture, planning, management and design company  Albert Kahn Associates is participating in the construction of a rail car production plant in Lipetsk at an estimated cost of RUB 14 billion (approximately GBP 278 million), with the capacity to produce 12,000 rail cars a year.

The project is to be implemented by the company Lipetksk Rail Car Construction Plant, which has filed a corresponding request with the authorities for the right to receive the status of resident of the Lipetsk Special Economic Zone, which would provide a significant number of tax breaks.

As well as Albert Kahn Associates, investors may include two businessmen linked to the diversified holding company Sistema. If this is the case, presumably these businessmen would then sell on their interests to Sistema, which has interests ranging rom IT and telecoms, to banking and insurance, media, pharmaceuticals and oil. Sistema has also been developing a rail freight business and sought to buy 25 per cent of Russia’s largest operator Freight One, only to lose out to Vladimir Lisin’s Novolipetsk Steel.

 

MegaFon CEO Ivan Tavrin to acquire interest in operator

According to the Russian business daily Kommersant (16 November 2012), the price per global depositary receipt will range from USD 20-25 during its listing on London Stock Exchange. and Moscow. As a result, the whole of MegaFon is being valued at approximately USD 11-14 billion.

Swedish telecoms operator Telia-Sonera and MegaFon Investments (owned by MegaFon) will be selling interests. After the IPO Alisher Usmanov’s AF Telecom will retain over 50 per cent of the mobile operator, with TeliaSonera holding 25 per cent minus one share.

In addition, MegaFon CEO Ivan Tavrin will own 1.25 per cent of the mobile operator through the purchase of 7.75 million shares from MegaFon Investments within one month of the IPO.